Morning Dairy Comments, 02/29/2016

Monday, February 29, 2016

General Market News

· Arab states face $94 billion debt crunch on oil slump- HSBC says

· Asia stocks fall with EU, US futures after G-20 Meeting

· China Central Bank cuts reserve requirement ratio by 0.5%

· U.S. stock futures lower on concerns over rate hike, slow growth



Class III, Cheese & Dry Whey

Friday’s trade was a continuation of the “sell the rumor, buy the fact” as the market corrected after fully digesting last Tuesday’s Jan Cold Storage report. American cheese stocks were up 13%, or up 81 million lbs. to 716.5 million lbs. Other Natural Cheese stocks were up 12%, or 40 mil lbs. to 436 million lbs. Most of the weakness has already been priced into the market as stocks have been relatively high since Q3 2015. At the moment the trade is dialing in on the high EU milk production aided by post quota growth and supportive grazing conditions. Also top of mind is a depressed EU cheese market with the absence of the former 25,000mt/month cheese importer Russia. EU Gouda prices are about €1,750/mt or 87 cents/pound. EU Cheddar prices are about €2,250/mt or $1.11/pound. Talk heard from the Gulfood show in Dubai added more credence to the market’s bearish sentiment.  

Blocks on Friday traded up 3 cents to $1.48 with 7 trades while barrels traded up 1 cent to $1.43 with 1 trade. Both class III and cheese futures were firm in the front months as some short covering may be the case.

Dry whey futures were mostly higher on light volume as AMS prices were up 0.9 cents to 24.55 cents on 8.6 million pounds. Earlier in the week futures were weaker along with the selloff in cheese and class III, as the crush spread traders were in action. According to Friday’s COT report the commercial traders added to their long position. Dairy Market News prices were steady although the Central Mostly dry whey prices moved a ¼ cent lower to 24 cents.

We look for Class III and cheese to open higher, whey to open steady.

April Cheese Futures:


Spot Session Results











UP 3







UP 1







UP 1 ¼  











NFDM, Butter, and NZX Futures

Friday’s NFDM market was up 1 ¼ cent to 76 cents with no trades. This market continues to chop sideways although is up off its lows of 69 ½ cents from early Feb. The main argument is the EU intervention program is helping the market stabilize. 45,000mt of SMP entered the program in 2016 so far, and at a 7,000mt/week pace the 109,000 annual cap will be reached by the end of April. At that time the EU will commence a tender buying process. In 2009 when the intervention capped out the EU was hesitant to lower the prices as it would have been a bad move politically with farmer protests ongoing. 

Also supportive is chatter the Chinese buyers are slowly stepping back in. Talk of huge stocks in China over the past year have been priced into the market, and may have been overly exaggerated. Although according to GTIS Chinese SMP imports were up 43% in Jan importing 33,486mt reminiscent of the bull market volumes. The increase some attribute it to the early Chinese New Year. Although there were reports that product inn December was held in bonded warehouses at Chinese ports awaiting favorable tariffs with the New Year. Also Mexico continues to buy volumes although at very competitive pricing.


More indicative of Chinese buying is the WMP imports which were up 42,000mt or up 52% from Jan 2015 to 121,000mt. Although recently the EU WMP prices have been under pressure to around €1,950/mt or 96 cents/lb. as they were priced out of the recent Algeria tender by New Zealand.  Looking at NZ’s exports for the full year of 2015 they were down 3% from 2014 at 1.38 million MT. The NZX futures have been slowly trending higher this past month.

Tomorrow’s GDT auction will feature 11,660mt of WMP, flat from last event, and SMP volumes are up 4.6% from last auction at 4,030mt.



The spot butter market dropped one penny lower to $1.9775 with no trades. The market continues to correct from the panic buying spree as the bulls flipped the boat over. Stocks were up 32% or up 47 million lbs. to 196 million in Jan’s cold storage report. Futures showed more weakness along with the soft spot market. As of tomorrow any butter sold on the CME must have been produced after Dec 1st 2015.

We look for the butter and non-fat to open firm.



Corn futures traded mostly range bound on Friday as the Ag Forum offered few curveballs with their Supply/demand tables. The acreage estimate came in at 90 million acres up 2 from the final 2015 number. The USDA assumed the trend yield estimate at 168bu/acre vs 2015’s 168.4. Feed usage estimates were slightly higher while industrial and ethanol demand stayed flat. Exports were up 50 mil bushels. The total carryout estimate was up 140 mil bushels from last year at 1.977 billion bushels. The US export prospects will be challenged by aggressive offers from South America especially with the strong USD taken into account. 

The soybean acres estimate was down 200,000 acres from to 2015 at 82.5 million acres. This is despite models showing slightly better crop economics for beans vs corn. Yields were estimated at 46.7bu/acre vs last year’s 48. Crush was up 20 mil, although exports were estimated at 1.825 billion bushels up 135 million from 2015. Carryouts were estimated to be down 10 mil bushels at 440 million bushels.

We expect corn and wheat to open higher, soybeans to open lower.

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